What happened
Shares of Container Store Group Inc. (TCS 2.28%) were getting bottled up again after the organizational-themed retailer posted another disappointing earnings report with second-quarter results missing the mark. Consequently, the stock was down 35.1% as of 12:16 p.m. EDT.
Image source: Container Store.
So what
The big-box chain said comparable sales increased 1.3% in the period, driving net sales growth of 2.8% to $224.5 million, which missed expectations of $225.2 million. Gross margin improved by 30 basis points to 58.2%, but consolidated selling, general, and administrative expenses increased 150 basis due to increased marketing expenses from the launch of a new brand campaign.
Adjusted earnings per share in the quarter fell from $0.12 to $0.10, in part because of the increased marketing expense, which was short of analyst estimates of $0.14.
CEO Melissa Reiff summed up the performance in a press release:
To Own Custom Closets is our number one strategic priority and we saw continued momentum in our Custom Closets sales in the quarter, along with strong omni-channel growth and effective digital marketing campaigns. However, elements of our merchandise campaign test and learn efforts, mostly around our other product categories, did not resonate with customers as well as we expected, curtailing our comparable store sales and earnings performance for the quarter.
Now what
Management maintained its guidance for the full year, calling for $885 million to $895 million in sales, or about 4% growth, and adjusted earnings per share of $0.41 to $0.51, up from $0.28 a year ago. Both forecasts were in line with analyst estimates.
In addition to missing expectations in the quarterly report, Container Store shares seemed to plummet for two reasons. The retailer appears to be struggling even in an excellent consumer environment, as a number of another retailers are posting breakout comparable sales. And the stock had already doubled year to date prior to today's plunge, after surging on its previous earnings report. That's a sign that investor optimism about a turnaround had gotten ahead of itself.
Still, investors should take some solace in the company's maintaining its guidance. The turnaround still seems on track. It's just taking longer than investors hoped.
